The planned mega merger between Total Access Communication Plc (DTAC) and True Corporation has caused a stir given its far-reaching impacts, not only on investment but also on consumers and other businesses that depend on telecommunication services like fintech suppliers, computer and mobile phone wholesalers as well as retailers.
This article focuses in particular on the telecom marketing structure, and the behaviour of mobile phone service and frequency wave providers. I aim to provide a way out of the merger predicament, with consideration to legal and policy constraints regarding possible trade collusion and competition, particularly difficulties in controlling telecom giants, as well as the implications for direct foreign investment.
The merger hit the news headlines on Nov 22 when Norway’s Telenor, the parent company of DTAC, and the conglomerate Charoen Pokphand (CP) Group, the parent of True, unveiled their ambitious plan. The plan would start with a voluntary tender offer for the two companies’ shares, 47.46 baht per share for DTAC and 5.09 baht per share for True. The two companies use the term “amalgamation”, as if to imply equal partnership when the new entity is established. The term indeed baffles many people.
Telenor has never given clear reasons for the high-profile merger. But the company previously had its subsidiary firm Celcom Digi merged with Celcom AXIATA in Malaysia, also citing equal partnership. The Norwegian firm may feel that as a foreign entity, it has faced discrimination, while competition is not truly fair.
Of course, the merger has both advantages and disadvantages.
As Telenor insisted, the two companies, each with its own strong points, are supposed to gain full advantages from the synergy. CP Group has wide connections with those in the telecom circle, while DTAC has profound experience in the region’s digital market. The move would allow CP to increase its investment without incurring new debt, and that means lower operating costs for both companies.
Yet, the merger will change the telecom market structure and affect market concentration. The merger, if it takes effect now, would see the new company’s customer market share reach 54%, versus 46% for AIS against the current market shares with AIS taking the lead at 46%, followed by True and DTAC at 32% and 22% respectively. That could affect consumers as the number of major operators would be reduced from three to two.
Somkiat Tangkitvanij, the president of the TDRI, was reported to have said that the amalgamation reminded of the telecom market in the past when only two telecom companies charged consumers and provided bundled services. Things took a turn for the better when a third operator joined the market. Competition led to improved services.
Besides, one key disadvantage for the state if there are only two operators in the market is that it would get lower revenue from 6G bidding in the future.
Indeed, the DTAC-True Mega Merger is just another merger in telecom industry. Another related development in the telecommunication sector is that Gulf Energy has become the largest shareholder on InTouch, replacing SingTel after a tender offer. It has also become the second-largest shareholder of the country’s largest mobile carrier, AIS.
The fact that foreign firms doing business in Thailand do not have the same level playing field as Thai firms without well connected Thai partners does not bode well for the future of the Thai economy. This might be an important, if not the most important, factor explaining the decline in foreign investment in Thailand.
Frequency waves are national assets and there must be legal measures to regulate the business, for the betterment of the public interest, economic system, fair business competition and national security.
The telecommunications business is governed by several laws. The crucial ones are the National Broadcasting and Telecommunication Commission (NBTC) Act 2000 and the amended versions, and the Telecommunications Business Act 2001, and the amended versions. In addition, the business is also regulated under the trade competition law.
In considering business mergers, the NBTC since 2010, had used clear guidelines based on quantitative measurement levels to decide if any consolidation would result in market dominance.
The guideline is the Herfindahl-Hirschman Index (HHI), which gauges market concentration conditions. The highest score of the HHI is 10,000, which is the maximum market concentration. The index measurement is made based on the market share of each company before and after consolidation.
If the HHI is more than 1,800 and it increases by over 100 after a merger, it is considered as high market concentration that undermines competition and leads to market dominance.
Before the merger, the HHI of the mobile business in Thailand was already high at 3,624 and if the mega merger taken places, the HHI could rise to 5,032, a situation defined by Mr Somkiat as an “alarming” level. The market concentration of global mobile phone vendors is an HHI of only 2,210.
However, the provision and HHI guidelines were recently revised with another regulation which allows the merger.
Under the new conditions, if the merger leads to higher market concentration with an HHI of over 2,500, and an increase of 100 after the merger, the NBTC is tasked with imposing conditions or special measures on the dominating businesses to ensure the public interest and foster fair business competition.
However, there is a question over whether NBTC can protect consumers and foster fair business competition.
That is because under the new regulation on mergers, the furthest the NBTC can go is to set conditions for the merging firms on operational controls. However, there is no guarantee that such controls would work. Those measures could be useless as regulators like the NBTC tend to lag behind businesses. It is noteworthy that, unlike Thailand, most advanced countries opt for structural control, rather than operational control. And in the event operational control is applied, the regulators in advanced countries set strong penalties, ie, fines, so high that no companies dare to break the rules.
The NBTC has an important and urgent task. It needs to revise pertaining regulations to give it more power. The agency has to sharpen its tools, ensuring that it has the full authority to decide on this telecom merger. The commission should do it when there is time — before DTAC and True formally submit their merger plan early next year.
The NBTC needs new regulations to protect consumers and foster fair business practices. These regulation on business mergers must be clear so they can minimise the use of judgement by state officers. The new regulations must be specific, and must be aligned with with the constitution and related laws that enable public benefits and fair business competition. Besides, there must be clear rules about the use of judgement by state officials, based on data, both quantitatively and qualitatively, with a clear time frame for every step.
As I mentioned earlier, mergers can have advantages and disadvantages. The main duty of the NBTC is to fairly weigh all the factors with a view to the public interest and consumer protection.
While the drafting is under way, the NBTC should organise inclusive public hearings and make public all the relevant reports to ensure transparency.
The drafting, and the examination of the application for the mega merger must be carefully carried out to maximise consumer benefit, that of the business sector and national security as well as the public interest. A new definition is needed in the area of national security. That is the state must not be under the influence of business giants. If it can complete all those tasks, the NBTC will be praised and gain public recognition.
It can’t be denied that the enforcement of trade competition law and the examination of the mega-merger plan is a matter of political economy. The chance of strengthening the regulations is almost nil. Mass consumers still lack power compared to those in the business, particularly telecom giants which possess hundreds of billions of baht and all the resources besides being major donors to political parties.
But consumers shouldn’t lose hope or faith in the trade competition act. Lessons from abroad, for instance the Sherman Antitrust Act 1890 in the US and other cases in Europe, show that it’s possible to have such a law in place and implement it efficiently when politicians understand the necessity of competition and, with support from mass consumers, follow the law.
I hope that Thai consumers, academics and civic network can join hands, convincing politicians, policy makers and the public of the importance of trade competition policy which can lead to development and investment in new technologies that truly benefit consumers. Only fair competition can strengthen the country’s competitiveness which will secure economic sustainability.
Nipon Poapongsakorn, a distinguished fellow of the Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.
First Published: Bangkok Post on December 22, 2021
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